Review of bilateral investment treaty with US in order

June 1, 2009

Although the bilateral investment treaty agrees to consult for dispute settlement, interpretation or application of this treaty, etc, it does not include any provision for amendment. It has been about 24 years since this treaty was signed and no amendment has been made so far, writes Meer Ahsan Habib

NewAge, June 1, 2009


AN INTERNATIONAL oil company engaged in oil and gas exploration has blown out an entire gas field; excluding the ecological loss, the monetary value of the loss is around Tk 1,700 crore. The company is unwilling to make any compensation both in terms of resource value and ecological disaster. Under the armour of a bilateral investment treaty between the two countries, which has a provision to make any transfer freely and without delay into and out of the country, this oil company sold its possessions to another IOC and transferred the transacted amount without any resistance from the government. This is how a company made its way out.
   

Readers might remember that Bangladesh suffered a major gas blow-out in 1997 for which Occidental, the fourth largest oil and gas company in the United States, was responsible. It was alleged that Occidental did not adopt proper preventive and precautionary measures to avoid such accidents. The compensation of the damage is yet to be realised in full. Besides, Occidental ended its operation in Bangladesh even before settling down the compensation issue with the Bangladesh government, leaving the issue to be dealt with Unocal that took over its interest. The latter was merged with Chevron Corporation in 2005. The bilateral invest treaty known as ‘Reciprocal Encouragement and Protection of Investment’ might have played a critical role to serve the Occidental’s interest by letting it go without settling down the compensation issue (Article V-1 which states ‘… all transfers related to an investment in its territory of a national or company of the other Party to be made freely and without delay into and out of its territory’). Back in December 1981, Clayco Petroleum Corporation filed an antitrust suit with the US district court against Occidental Petroleum Corporation that Occidental allegedly made secret payments to an official of Umm Al Qaywayn (one of the emirates in the United Arab Emirates) to obtain an off-shore oil concession. The district court, however, dismissed the action on the basis of the act of state doctrine. Needless to mention that US has a Foreign Corrupt Practices Act in place to restrain US companies concerning bribery of foreign officials.
   

There has been a lot of debate on whether Bangladesh should move ahead with Trade and Investment Framework Agreement or not. However, little is known about the bilateral investment treaty that was signed between Bangladesh and the US back in 1986 during the despotic Ershad regime. It is said the first draft of TIFA acknowledged the treaty signed in March 1986. This BIT was first introduced by the US in 1981 which is dedicated towards encouragement and protection of US investment in developing countries. The US has so far concluded 40 such treaties. Among other South Asian countries, Sri Lanka is the second after Bangladesh who has concluded such treaty and a TIFA as well.
   

The bilateral investment treaty is an ‘integral part of US efforts to encourage other governments to adopt macroeconomic and structural policies that will promote economic growth.’ A specific tenet in this treaty is that US direct investment abroad and foreign investment in the US should receive fair, equitable and non-discriminatory treatment. It also emphasises that international direct investment flows should be determined by private market force. Other major characteristics of the treaty are that international standard laws shall be applied in case of any expropriation and payment of compensation, free transfer of funds associated with an investment both in and out of the host country and third party arbitration for dispute settlement.
   

Like every investment treaties, the US attached a line on intellectual property right in article I(c) (iv) of this treaty which recognises ‘Intellectual property, including rights with respect copyrights and related patents, trade marks and trade names, industrial designs, trade secrets and know-how, and goodwill’ by the other party and its political subdivisions. The US and the corporate giants have always used IPR as a political and economic weapon. Bangladesh being a least developed country is enjoying the flexibility in implementing IPR till January 2016. Full implementation of IPR will only strengthen corporate monopoly.
   

From a developing country perspective, existence of performance requirements such as export obligation to a minimum percentage, procurement of local products and services and employing local labour, use of most recent technology, etc add values to the foreign investment. The bilateral investment treaty under article II-6 includes a provision that ‘…each Party shall seek to avoid the imposition of performance requirements on the investments…’ which in a different way implies that ‘performance requirement’ cannot be imposed.
   

According to article III (E), ‘Compensation shall be equivalent to the fair market value of the investment. The calculation of such compensation shall not reflect any reduction.’ Undoubtedly, when Bangladesh and other developing countries are at the receiving end, relative bargaining strength becomes determining factor in such agreements. Expropriation has been a thorny issue. Developing countries have traditionally been agreed that compensation be made for any kind of expropriation by the state that is done for a public purpose. But in cases of any environmental damage caused by a firm and under such condition when the firm is unwilling or incapable to compensate damages, expropriation should be made without compensating the investing company.
   

In case of any dispute that is not solved through consultation and negotiation, the bilateral investment treaty under article VII-2 has provisions of settling down any such investment dispute under the rules of ‘additional facility’ of the International Centre for the Settlement of Investment Disputes. Apparently, this sounds to be a favourable term, but a developing country like Bangladesh should seek avenue to settle such disputes under the United Nations Commission on International Trade Law than the multilateral international financial institution influenced ICSID. Bangladesh presently not being a member of UNICTRAL does not enjoy the privilege of settling an investment dispute under its shadow.
   

Although the bilateral investment treaty agrees to consult for dispute settlement, interpretation or application of this treaty, etc, it does not include any provision for amendment. It has been about 24 years since this treaty was signed and no amendment has been made so far. It is high time that the government should take an in-depth look into this aspect of this treaty and come up with necessary modification proposal.
   

Comparing FDI Acts of Bangladesh and India one can find that Bangladesh has put almost no protectionist measures in her Foreign Private Investment (Promotion and Protection) Act 1980, while India has a number of such measures, e.g. she has listed 30 projects which will have to obtain environment clearance certificate under the Environment Protection Act 1986. As we can that even after having such restrictions, India secured a robust growth in FDI while Bangladesh is witnessing a decreasing trend despite having vast flexibilities. So it is not the investment treaty that attracts FDI, it is the competitive advantages that we do not have. An appreciable move by the government is the initiation of the Bangladesh Competition Council which will aim at promoting fair competition among business and service providers and prevention of unfair business. This commission can extend its works in areas as such concluding investment treaties to ensure that Bangladesh’s interest is attained. Now that an elected government is in power with a promise of change, it is high time that they explored pros and cons of such treaties that are still in effect and negotiate with the stakeholder countries. In this context, it is expected that in signing the future treaties, particularly regarding encouragement and protection of investment the government should do proper homework before finalising the decision.
   

Meer Ahsan Habib works for the Centre for Policy Dialogue, a research organisation.